Skittish investors on Wall Street and beyond hurried to sell off stakes in Apple earlier this week after Steve Jobs unexpectedly announced another medical leave of absence from his beloved company.
While the announcement itself was a surprise, the topic of Jobs’ health has been in the back of everyone’s mind since the indispensable CEO took another medical leave of absence to receive a liver transplant in 2009.
This leave may prove ultimately more ominous, however. When Jobs announced his leave in 2009, he stated a fixed time of six months, saying he would return in June of that year. This time, however, Jobs gave no indication of a time period, leaving only foreboding statements with employees like, “I love Apple so much and hope to be back as soon as I can.”
The issuing of the statement couldn’t have been better executed, though. It was announced on a holiday when U.S. stock exchanges were closed, giving the markets time to digest this information. It was also done the day before Apple released its monster fourth-quarter earnings (which include holiday sales), the release of which quickly sent Apple stock back up, erasing losses from Jobs’ announcement.
The statement was also given at a very propitious moment in regards to longer-term strategy. With the scheduled release of the iPhone 5, iPad 2, iPhone for Verizon, new Mac OS X “Lion,” the newly launched Mac App store and excellent overall trajectory (4Q revenue was up 71 percent year over year, and iPhone sales were up 86 percent year over year, a figure that would be even higher if production capacity permitted), Jobs has positioned the company so that it could be run by a ham sandwich for the next year, if necessary.
Fortunately, Apple has one better than a ham sandwich at the helm. COO Tim Cook, who has already been running the daily operations for some time, will lead operations in the absence of Jobs. Cook is a tech veteran and has been with Apple for nearly 13 years. He also makes $59 million a year compared to Jobs’ $1-per-year salary.
The Apple we know today would no doubt be impossible without Steve Jobs; he’s done a great deal. But he’s arguably done all he can do to build a moat around the company (for now) and ensure that it runs smoothly without him.
And most importantly, his leadership is not without sin, his biggest being the $50 billion in cash the company hoards on its balance sheet (this figure is projected to grow to more than $70 billion this year).
What is so bad about this, you may ask? What’s wrong is the fact that this money is not free, and just sitting on it below the company’s cost of capital is effectively destroying shareholder value (and the purpose of a company is to maximize shareholder value). The company needs to either issue a dividend to shareholders (Jobs refuses), buy back stock, reinvest in new products or engage in a Google-like acquisition spree—maybe even purchase Netflix while it’s at it?
Ultimately, investors need to brace themselves for an Apple without Steve Jobs, as I’m sure most employees have already done. The position and terms with which Jobs leaves the company highly suggest he does not intend on coming back too soon, and if there was an ability (or willingness) to put some short-term limit on the absence, Jobs would have already done so in order to quell the markets.
Jobs will still likely have close ties with management, as I’m sure a dedicated workaholic like himself cannot bear to be to disconnected for too long, but I would not be surprised if this is all a sort of trial-run for his looming retirement.